Var Model In Market Risk Management In Commercial Banks In China

Market risk refers to the uncertainty of returns of financial instrumentsgenerated by the market factors such as interest rate and exchange rate.With the opening of our financial market, the financial system of Chinaencounters a more severe market risk. Therefore, a precise method shouldbe introduced to estimate and manage the market risk. VAR model is animportant method to valuate risks in the management of commercial banksand becomes most popular in world wide. It not only can be used incontrolling the risks in the banks, but also be valuable in performanceevaluation and information publication. In this thesis, a practicalanalysis is conducted to show what is a bank's market risk by using thevolatility of interest rates. Further more, the value-at-risk of aninvestment portfolio also can be computed. VAR model has a stricttheoretical hypotheses and a high demand of market transparency, whichasks the integrating of sensitive analysis and other analytical methodto verify the results. Although there are still some disadvantages inusing this method, it is undeniable that the use of VAR models will greatlyimprove banks' supervision and risk control standards to enhance ourability to withstand risks.